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The war on coal is already over, Mr. President

Insight: The energy industry has boosted natural gas and nuclear power

By

TimMullaney

AFP/Getty Images

The Environmental Protection Agency today will announce new climate-change rules clamping down on emissions from electricity plants. The usual lobbyists and politicians are already braying about Barack Obama’s “war on coal” — liberal, Harvard, lacks-chest-hair/isn’t-a-real-American stuff emanating from a Washington every bit as gaseous as the one portrayed in Steven Spielberg’s “Lincoln,” now in heavy rotation on cable.

But the war on coal already happened — coal lost. And for a reason that should make conservatives happy: They drilled, baby, and it worked, beginning years before Sarah Palin popularized “drill baby drill” in 2008. Massive new exploration of shale formations after 2002 produced a 65% drop in natural-gas prices since 2005 that, with or without Obama’s caps on utilities’ carbon emissions, is wiping out coal’s few remaining growth prospects.

To understand the economics of U.S. climate and coal policy, begin with three facts. About 85% of U.S. coal goes into electricity, according to Moody’s Investors Service. Electricity demand is expected to grow just 0.9% annually through 2040, according to the Energy Information Administration. And the falling price of gas, coupled with existing rules to limit power plants’ mercury emissions, mean coal will be more expensive than gas as well as dirtier. And that’s before new carbon limits raise coal’s effective price again.

That’s why utilities began shifting from coal by 2004, according to the EIA. In the past decade, coal’s share of electricity production fell to 40% from 50%. Natural gas gained 9 points and now commands 27% of the market, and the share of renewables like solar and wind has tripled to 6.2%.

This happened before the first broad federal limits on carbon from existing power plants — expected to be some variation of flexible cap-and-trade standards Republicans proposed in the 1980s but oppose now — are even introduced for public comment. They’ll take years to implement.

“If you have less demand and you have a cheaper fuel source, you don’t have to run the coal plants as often,” Morningstar utilities analyst Travis Miller says. A bonus: Carbon-dioxide emissions from power plants dropped 10% between 2010 and 2012, EPA says.

Markets have seen this coming like — sorry — a train full of coal. Coal prices haven’t recovered nearly all of their 2012 losses, even though gas prices have doubled from a trough that year.

Or look at bond ratings. Moody’s rates all 13 coal producers it follows as below investment grade. Of special note to Kentucky, where up-for-re-election GOP Sen. Mitch McConnell is working the “war on coal” theme hard: Moody’s has downgraded Arch Coal
ACI, +2.07%
and Alpha Natural Resources
ANR, +6.67%
two mining companies with Kentucky operations, three times each since early 2012, reducing their ratings by a total of seven notches, the firm says.

And Moody’s didn’t cite carbon rules: Instead, the culprit is a broad, secular decline in the price of Appalachian coal.

“A lot of older, less efficient, dirtier coal plants are going to be retired,” Moody’s Anna Zubets-Anderson said. “Coal production had a deep dip in 2012 and hasn’t recovered, and that was driven by natural gas prices.”

Southern’s building a 2,200-megawatt expansion of the Vogtle nuclear plant it owns with partners in Georgia, creating the nation’s biggest nuke. It’s adding up to 800 megawatts of solar projects in Georgia. Company-wide, Southern plans to decommission 2,900 megawatts of coal production, and has added 7,000 megawatts of gas since 2007.

The company says it plans to stay flexible between gas and coal, depending on gas prices, while using more nuclear. Southern may get as little as 25% of its power from coal by 2020, compared with 38% last year and a historical average of 70%. And Southern is an active, Republican-leaning political donor that Greenpeace’s PolluterWatch in 2011 called the nation’s worst polluter by some measures.

Meaning, even people who historically like coal, and have financial interests in coal, are bailing. (The big exception: Southern’s nearly completed $5 billion-plus plant in Mississippi using new technology to turn coal into, yup, natural gas.) It’s not a good business bet. And carbon rules for new power plants proposed last year can’t be met by conventional coal technology, analysts say.

Near the end of “Lincoln,” Daniel Day-Lewis’ Lincoln dismisses Rebel complaints about the 13th amendment and the overweening federal control it represented (which sound amazingly contemporary) with a curt explanation of settled facts. “Slavery, sir, it’s done,’’ he tells Jackie Earle Haley, playing Confederate Vice President Alexander Stephens.

So is coal.

Tim Mullaney writes on the economy, health care and technology. Follow him on Twitter @timmullaney or contact him at tim.mullaney@outlook.com.

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